Crashed: How a Decade of Financial Crises Changed the World

by Adam Tooze

2006, as Merkel’s grand coalition took office, the mood in the western Länder, and particularly the rich southern states, was resentful. They had been conscripted into a gigantic act of solidarity with the East. Now they had had enough. Capping deficits was a not-so-covert promise to the rich southern states to rebalance priorities away from the needy and indebted eastern and northern members of the Bund. Fatefully for the future of the eurozone, the problem of fiscal control was cast by German politics already from the early 2000s as one of equity within a federal transfer union. Well before the Greek crisis broke, the most prosperous regions of West Germany had made clear their refusal to take responsibility for other people’s debts, German or otherwise. The argument that the debts “shouldered by the West” to pay for spending “in the East” had generated huge orders for West German business—in effect exports within Germany from West to East—cut no ice. After 2010 the same argument would cut no ice at the European level either. What the most influential voters and voices in German public opinion wanted was simple: discipline all around. In 2006 a commission was set up to devise a new federal fiscal settlement. The idea, following the Swiss example of 2001, was to adopt a “debt brake” to block any further expansion of debt at the Bund, Länder or Commune level. Hammering out the multilevel political deal was slow work. But Steinbrück and the Federal Ministry of Finance were ...